XNYS:BRK.A Berkshire Hathaway Inc Class A Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended June 30, 2012
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the transition period from                     to                    
 
Commission file number 001-14905
 
BERKSHIRE HATHAWAY INC.
(Exact name of registrant as specified in its charter)
 
Delaware
47-0813844
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification Number)
 
 
3555 Farnam Street, Omaha, Nebraska 68131
(Address of principal executive office)
(Zip Code)
 
(402) 346-1400
(Registrant’s telephone number, including area code)
 

(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x
Accelerated filer  ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ¨    No  x
 
Number of shares of common stock outstanding as of July 26, 2012:
 
Class A —            927,848
Class B —  1,086,380,702
 


 
 
 

 
 
BERKSHIRE HATHAWAY INC.
 
 
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1

 
 
Part I Financial Information
 
Item 1. Financial Statements
BERKSHIRE HATHAWAY INC.
and Subsidiaries
 
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
 
   
June 30,
   
December 31,
 
 
2012
   
2011
 
   
(Unaudited)
       
ASSETS            
Insurance and Other:
           
Cash and cash equivalents
  $ 36,812     $ 33,513  
Investments:
               
Fixed maturity securities
    30,512       31,222  
Equity securities
    85,270       76,063  
Other
    14,297       13,111  
Receivables
    21,192       19,012  
Inventories
    9,525       8,975  
Property, plant and equipment
    18,388       18,177  
Goodwill
    32,037       32,125  
Other
    17,799       18,121  
      265,832       250,319  
                 
Railroad, Utilities and Energy:
               
Cash and cash equivalents
    2,598       2,246  
Property, plant and equipment
    84,443       82,214  
Goodwill
    20,076       20,056  
Other
    13,329       12,861  
      120,446       117,377  
                 
Finance and Financial Products:
               
Cash and cash equivalents
    1,251       1,540  
Investments in fixed maturity securities
    923       966  
Other investments
    4,388       3,810  
Loans and finance receivables
    13,664       13,934  
Goodwill
    1,032       1,032  
Other
    3,820       3,669  
      25,078       24,951  
    $ 411,356     $ 392,647  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Insurance and Other:
               
Losses and loss adjustment expenses
  $ 63,049     $ 63,819  
Unearned premiums
    10,603       8,910  
Life, annuity and health insurance benefits
    10,158       9,924  
Accounts payable, accruals and other liabilities
    17,750       18,466  
Notes payable and other borrowings
    13,531       13,768  
      115,091       114,887  
                 
Railroad, Utilities and Energy:
               
Accounts payable, accruals and other liabilities
    12,877       13,016  
Notes payable and other borrowings
    34,148       32,580  
      47,025       45,596  
                 
Finance and Financial Products:
               
Accounts payable, accruals and other liabilities
    1,214       1,224  
Derivative contract liabilities
    10,137       10,139  
Notes payable and other borrowings
    13,453       14,036  
      24,804       25,399  
Income taxes, principally deferred
    42,721       37,804  
Total liabilities
    229,641       223,686  
                 
Shareholders’ equity:
               
Common stock
    8       8  
Capital in excess of par value
    37,856       37,807  
Accumulated other comprehensive income
    23,781       17,654  
Retained earnings
    115,801       109,448  
Treasury stock, at cost
    (67 )     (67 )
Berkshire Hathaway shareholders’ equity
    177,379       164,850  
Noncontrolling interests
    4,336       4,111  
Total shareholders’ equity
    181,715       168,961  
    $ 411,356     $ 392,647  
 
See accompanying Notes to Consolidated Financial Statements
 
 
2

 
 
BERKSHIRE HATHAWAY INC.
and Subsidiaries
 
CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions except per share amounts)
 
   
Second Quarter
   
First Six Months
 
   
2012
   
2011
   
2012
   
2011
 
   
(Unaudited)
   
(Unaudited)
 
Revenues:
                       
Insurance and Other:
                       
Insurance premiums earned
  $ 8,428     $ 8,949     $ 16,493     $ 16,431  
Sales and service revenues
    20,814       18,336       40,078       35,108  
Interest, dividend and other investment income
    1,420       1,426       2,487       2,703  
Investment gains/losses
    102       1,128       332       1,214  
Other-than-temporary impairment losses on investments
                (337 )     (506 )
      30,764       29,839       59,053       54,950  
                                 
Railroad, Utilities and Energy:
                               
Operating revenues
    7,769       7,436       15,618       14,813  
Other
    41       32       88       68  
      7,810       7,468       15,706       14,881  
                                 
Finance and Financial Products:
                               
Interest, dividend and other investment income
    372       359       747       757  
Investment gains/losses
    23       161       24       174  
Derivative gains/losses
    (1,068 )     (184 )     (66 )     87  
Other
    645       631       1,229       1,145  
      (28 )     967       1,934       2,163  
      38,546       38,274       76,693       71,994  
                                 
Costs and expenses:
                               
Insurance and Other:
                               
Insurance losses and loss adjustment expenses
    4,586       6,262       9,357       12,280  
Life, annuity and health insurance benefits
    1,351       976       2,443       1,991  
Insurance underwriting expenses
    1,534       1,720       3,651       3,445  
Cost of sales and services
    16,821       14,955       32,417       28,814  
Selling, general and administrative expenses
    2,476       2,122       4,904       4,157  
Interest expense
    106       70       209       137  
      26,874       26,105       52,981       50,824  
                                 
Railroad, Utilities and Energy:
                               
Cost of sales and operating expenses
    5,767       5,651       11,637       11,223  
Interest expense
    439       427       867       852  
      6,206       6,078       12,504       12,075  
                                 
Finance and Financial Products:
                               
Interest expense
    151       165       311       331  
Other
    700       661       1,351       1,265  
      851       826       1,662       1,596  
      33,931       33,009       67,147       64,495  
Earnings before income taxes
    4,615       5,265       9,546       7,499  
Income tax expense
    1,384       1,725       2,949       2,354  
Net earnings
    3,231       3,540       6,597       5,145  
Less: Earnings attributable to noncontrolling interests
    123       123       244       217  
Net earnings attributable to Berkshire Hathaway
  $ 3,108     $ 3,417     $ 6,353     $ 4,928  
Average common shares outstanding *
    1,651,511       1,649,052       1,651,228       1,648,732  
Net earnings per share attributable to Berkshire Hathaway shareholders *
  $ 1,882     $ 2,072     $ 3,847     $ 2,989  

*
Average shares outstanding include average Class A common shares and average Class B common shares determined on an equivalent Class A common stock basis. Net earnings per common share attributable to Berkshire Hathaway shown above represents net earnings per equivalent Class A common share. Net earnings per Class B common share is equal to one-fifteen-hundredth (1/1,500) of such amount.
 
See accompanying Notes to Consolidated Financial Statements
 
 
3

 
 
BERKSHIRE HATHAWAY INC.
and Subsidiaries
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in millions)

   
Second Quarter
   
First Six Months
 
   
2012
   
2011
   
2012
   
2011
 
Comprehensive income attributable to Berkshire Hathaway:
                       
Net earnings
  $ 3,108     $ 3,417     $ 6,353     $ 4,928  
                                 
Other comprehensive income:
                               
Net change in unrealized appreciation of investments
    (1,788 )     (54 )     9,854       598  
Applicable income taxes
    584       40       (3,467 )     (177 )
Reclassification of investment appreciation in earnings
    (107 )     (1,353 )     25       (920 )
Applicable income taxes
    37       474       (9 )     322  
Foreign currency translation
    (537 )     205       (318 )     644  
Applicable income taxes
    6       (22 )     7       (35 )
Prior service cost and actuarial gains/losses of defined benefit plans
    37       15       49       11  
Applicable income taxes
    (10 )     (4 )     (16 )     (4 )
Other, net
    42       (39 )     2       8  
Other comprehensive income, net
    (1,736 )     (738 )     6,127       447  
Comprehensive income attributable to Berkshire Hathaway
  $ 1,372     $ 2,679     $ 12,480     $ 5,375  
Comprehensive income of noncontrolling interests
  $ 82     $ 138     $ 223     $ 237  
 

 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(dollars in millions)
 
         
Berkshire Hathaway shareholders’ equity
     
   
Common stock
and capital in
excess of par
value
   
Accumulated
other
comprehensive
income
   
Retained
earnings
   
Treasury
stock
   
Total
   
Non-
controlling
interests
 
Balance at December 31, 2010
  $ 37,541     $ 20,583     $ 99,194     $     $ 157,318     $ 5,616  
Net earnings
                4,928             4,928       217  
Other comprehensive income, net
          447                   447       20  
Issuance of common stock and other transactions
    377                         377        
Changes in noncontrolling interests:
                                               
Interests acquired and other transactions
    (139 )     76                   (63 )     (2,076 )
Balance at June 30, 2011
  $ 37,779     $ 21,106     $ 104,122     $     $ 163,007     $ 3,777  
                                                 
                                                 
Balance at December 31, 2011
  $ 37,815     $ 17,654     $ 109,448     $ (67 )   $ 164,850     $ 4,111  
Net earnings
                6,353             6,353       244  
Other comprehensive income, net
          6,127                   6,127       (21 )
Issuance of common stock and other transactions
    51                         51        
Changes in noncontrolling interests:
                                               
Interests acquired and other transactions
    (2 )                       (2 )     2  
Balance at June 30, 2012
  $ 37,864     $ 23,781     $ 115,801     $ (67 )   $ 177,379     $ 4,336  
 
See accompanying Notes to Consolidated Financial Statements
 
 
4

 
 
BERKSHIRE HATHAWAY INC.
and Subsidiaries
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in millions)
 
   
First Six Months
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net earnings
  $ 6,597     $ 5,145  
Adjustments to reconcile net earnings to operating cash flows:
               
Investment (gains) losses and other-than-temporary impairment losses
    (19 )     (882 )
Depreciation
    2,518       2,276  
Other
    428       149  
Changes in operating assets and liabilities before business acquisitions:
               
Losses and loss adjustment expenses
    (539 )     4,332  
Deferred charges reinsurance assumed
    176       (645 )
Unearned premiums
    1,722       1,580  
Receivables and originated loans
    (1,565 )     (1,981 )
Derivative contract assets and liabilities
    36       (294 )
Income taxes
    647       599  
Other assets
    (973 )     (1,607 )
Other liabilities
    481       1,311  
Net cash flows from operating activities
    9,509       9,983  
                 
Cash flows from investing activities:
               
Purchases of fixed maturity securities
    (4,605 )     (4,227 )
Purchases of equity securities
    (5,277 )     (4,453 )
Sales of fixed maturity securities
    1,403       1,355  
Redemptions and maturities of fixed maturity securities
    3,268       3,518  
Sales of equity securities
    3,828       209  
Redemptions of other investments
          9,345  
Purchases of loans and finance receivables
    (471 )     (1,511 )
Principal collections on loans and finance receivables
    425       2,494  
Acquisitions of businesses, net of cash acquired
    (469 )     (172 )
Purchases of property, plant and equipment
    (4,579 )     (3,444 )
Other
    (336 )     79  
Net cash flows from investing activities
    (6,813 )     3,193  
                 
Cash flows from financing activities:
               
Proceeds from borrowings of insurance and other businesses
    1,761       51  
Proceeds from borrowings of railroad, utilities and energy businesses
    2,849       1,540  
Proceeds from borrowings of finance businesses
    1,586       1,527  
Repayments of borrowings of insurance and other businesses
    (1,915 )     (2,237 )
Repayments of borrowings of railroad, utilities and energy businesses
    (524 )     (618 )
Repayments of borrowings of finance businesses
    (2,167 )     (1,676 )
Change in short term borrowings, net
    (912 )     (524 )
Acquisitions of noncontrolling interests and other
    (19 )     (1,769 )
Net cash flows from financing activities
    659       (3,706 )
Effects of foreign currency exchange rate changes
    7       194  
Increase in cash and cash equivalents
    3,362       9,664  
Cash and cash equivalents at beginning of year *
    37,299       38,227  
Cash and cash equivalents at end of first six months *
  $ 40,661     $ 47,891  
                 
                 
* Cash and cash equivalents are comprised of the following:
               
Beginning of year—
               
Insurance and Other
  $ 33,513     $ 34,767  
Railroad, Utilities and Energy
    2,246       2,557  
Finance and Financial Products
    1,540       903  
    $ 37,299     $ 38,227  
                 
End of first six months—
               
Insurance and Other
  $ 36,812     $ 43,193  
Railroad, Utilities and Energy
    2,598       2,804  
Finance and Financial Products
    1,251       1,894  
    $ 40,661     $ 47,891  
 
See accompanying Notes to Consolidated Financial Statements
 
 
5

 
 
BERKSHIRE HATHAWAY INC.
and Subsidiaries
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
 
Note 1.    General
 
The accompanying unaudited Consolidated Financial Statements include the accounts of Berkshire Hathaway Inc. (“Berkshire” or “Company”) consolidated with the accounts of all its subsidiaries and affiliates in which Berkshire holds controlling financial interests as of the financial statement date. In these notes the terms “us,” “we” or “our” refer to Berkshire and its consolidated subsidiaries.  Reference is made to Berkshire’s most recently issued Annual Report on Form 10-K (“Annual Report”) that included information necessary or useful to understanding Berkshire’s businesses and financial statement presentations. Our significant accounting policies and practices were presented as Note 1 to the Consolidated Financial Statements included in the Annual Report. Certain immaterial amounts in 2011 have been reclassified to conform to the current year presentation. Financial information in this report reflects any adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with accounting principles generally accepted in the United States (“GAAP”).
 
For a number of reasons, our results for interim periods are not normally indicative of results to be expected for the year. The timing and magnitude of catastrophe losses incurred by insurance subsidiaries and the estimation error inherent to the process of determining liabilities for unpaid losses of insurance subsidiaries can be relatively more significant to results of interim periods than to results for a full year. Variations in the amount and timing of investment gains/losses can cause significant variations in periodic net earnings. Investment gains/losses are recorded when investments are disposed or are other-than-temporarily impaired. In addition, changes in the fair value of derivative assets/liabilities associated with derivative contracts that are not accounted for as hedging instruments can cause significant variations in periodic net earnings.
 
Note 2.    New accounting pronouncements
 
As of January 1, 2012, we adopted FASB Accounting Standards Update (“ASU”) 2010-26, “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.” ASU 2010-26 specifies that only direct incremental costs associated with successful efforts in acquiring or renewing of insurance contracts should be capitalized and amortized over the policy term. All other costs are required to be expensed as incurred. Capitalized costs include certain advertising costs if the primary purpose of the advertising is to elicit sales to customers who could be shown to have responded directly to the advertising and the probable future revenues generated are in excess of expected future costs to be incurred in realizing those revenues. Berkshire adopted ASU 2010-26 on a prospective basis. The impact of the adoption of this new standard primarily relates to certain advertising costs of GEICO, which were capitalized prior to the adoption of ASU 2010-26, but are no longer eligible to be capitalized. The adoption of this new standard did not have a material effect on our Consolidated Financial Statements.
 
As of January 1, 2012, we also adopted ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” As a result of adopting ASU 2011-04, we have expanded our fair value disclosures.
 
In December 2011, the FASB issued ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities.” ASU 2011-11 enhances disclosures surrounding offsetting (netting) assets and liabilities. The standard applies to financial instruments and derivatives and requires companies to disclose both gross and net information about financial instruments and derivatives eligible for offset in financial statements and financial instruments and derivatives subject to master netting arrangements. ASU 2011-11 is effective for fiscal years beginning on or after January 1, 2013 and is required to be applied retrospectively. In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.”  ASU 2012-02 allows an entity to first assess qualitative factors in determining whether events and circumstances indicate that it is more-likely-than not that an indefinite-lived intangible asset is impaired.  If an entity determines that it is not more-likely-than not that the indefinite-lived intangible asset is impaired, then the entity is not required to perform a quantitative impairment test.  ASU 2012-02 is effective for fiscal years beginning after September 15, 2012.  We are currently evaluating the effects these new standards will have on our Consolidated Financial Statements.
 
Note 3.    Significant business acquisitions
 
Our long-held acquisition strategy is to acquire businesses with consistent earning power, good returns on equity and able and honest management at sensible prices.
 
 
6

 

Notes To Consolidated Financial Statements (Continued)
 
Note 3.    Significant business acquisitions (Continued)
 
On September 16, 2011, Berkshire completed the acquisition of The Lubrizol Corporation (“Lubrizol”). The acquisition was pursuant to a merger agreement, under which Berkshire acquired all of the outstanding shares of Lubrizol common stock for cash of $135 per share (approximately $8.7 billion in the aggregate). Lubrizol, based in Cleveland, Ohio, is an innovative specialty chemical company that produces and supplies technologies to customers in the global transportation, industrial and consumer markets. These technologies include additives for engine oils, other transportation-related fluids and industrial lubricants, as well as additives for gasoline and diesel fuel. In addition, Lubrizol makes ingredients and additives for personal care products and pharmaceuticals; specialty materials, including plastics; and performance coatings. Lubrizol’s industry-leading technologies in additives, ingredients and compounds enhance the quality, performance and value of customers’ products, while reducing their environmental impact. We accounted for the Lubrizol acquisition pursuant to the acquisition method.  The valuation of the identifiable assets and liabilities and the resulting excess amount recorded as goodwill as of the acquisition date was completed as of December 31, 2011.  Lubrizol’s financial results are included in our Consolidated Financial Statements beginning as of September 16, 2011.
 
We have owned a controlling interest in Marmon Holdings, Inc. (“Marmon”) since 2008. In the first quarter of 2011, we increased our ownership in Marmon to 80.2% as a result of acquiring 16.6% of Marmon’s outstanding common stock for approximately $1.5 billion. We are contractually required to acquire substantially all of the remaining noncontrolling interests of Marmon no later than March 31, 2014 for an amount that will be based on Marmon’s future operating results. In June 2011, we acquired all of the noncontrolling interests in Wesco Financial Corporation for aggregate consideration of $543 million, consisting of cash of approximately $298 million and 3,253,472 shares of Berkshire Class B common stock.
 
Note 4.    Investments in fixed maturity securities
 
Investments in securities with fixed maturities as of June 30, 2012 and December 31, 2011 are summarized by type below (in millions).
 
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
June 30, 2012
                       
U.S. Treasury, U.S. government corporations and agencies
  $ 2,594     $ 36     $     $ 2,630  
States, municipalities and political subdivisions
    2,716       194             2,910  
Foreign governments
    10,917       303       (84 )     11,136  
Corporate bonds
    10,234       1,836       (16 )     12,054  
Mortgage-backed securities
    2,373       343       (11 )     2,705  
    $ 28,834     $ 2,712     $ (111 )   $ 31,435  
                                 
                                 
December 31, 2011
                               
U.S. Treasury, U.S. government corporations and agencies
  $ 2,894     $ 41     $     $ 2,935  
States, municipalities and political subdivisions
    2,862       208             3,070  
Foreign governments
    10,608       283       (48 )     10,843  
Corporate bonds
    11,120       1,483       (155 )     12,448  
Mortgage-backed securities
    2,564       343       (15 )     2,892  
    $ 30,048     $ 2,358     $ (218 )   $ 32,188  
 
Investments in fixed maturity securities are reflected in our Consolidated Balance Sheets as follows (in millions).
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Insurance and other
  $ 30,512     $ 31,222  
Finance and financial products
    923       966  
    $ 31,435     $ 32,188  
 
Investments in foreign government securities include securities issued by national and provincial government entities as well as instruments that are unconditionally guaranteed by such entities. As of June 30, 2012, approximately 94% of foreign government holdings were rated AA or higher by at least one of the major rating agencies. Investments in obligations issued or guaranteed by Germany, the United Kingdom, Canada, Australia and the Netherlands represent approximately 80% of the investments in foreign government obligations. Unrealized losses on fixed maturity investments in a continuous unrealized loss position for more than twelve consecutive months were $24 million as of June 30, 2012 and $20 million as of December 31, 2011.
 
 
7

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 4.    Investments in fixed maturity securities (Continued)
 
The amortized cost and estimated fair value of securities with fixed maturities at June 30, 2012 are summarized below by contractual maturity dates. Actual maturities will differ from contractual maturities because issuers of certain of the securities retain early call or prepayment rights. Amounts are in millions.
 
   
Due in one
year or less
   
Due after one
year through
five years
   
Due after five
years through
ten years
   
Due after
ten years
   
Mortgage-backed
securities
   
Total
 
Amortized cost
  $ 5,960     $ 13,617     $ 4,472     $ 2,412     $ 2,373     $ 28,834  
Fair value
    5,955       14,656       5,171       2,948       2,705       31,435  
 
Note 5.    Investments in equity securities
 
Investments in equity securities as of June 30, 2012 and December 31, 2011 are summarized based on the primary industry of the investee in the table below (in millions).
 
   
Cost Basis
   
Unrealized
Gains
   
Unrealized
Losses
   
Fair
Value
 
June 30, 2012
                       
Banks, insurance and finance
  $ 17,661     $ 13,665     $ (230 )   $ 31,096  
Consumer products
    9,843       15,549       (2 )     25,390  
Commercial, industrial and other
    23,690       6,496       (456 )     29,730  
    $ 51,194     $ 35,710     $ (688 )   $ 86,216  
                                 
                                 
December 31, 2011
                               
Banks, insurance and finance
  $ 16,697     $ 9,480     $ (1,269 )   $ 24,908  
Consumer products
    12,390       14,320             26,710  
Commercial, industrial and other
    20,523       4,973       (123 )     25,373  
    $ 49,610     $ 28,773     $ (1,392 )   $ 76,991  
 
Investments in equity securities are reflected in our Consolidated Balance Sheets as follows (in millions).
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Insurance and other
  $ 85,270     $ 76,063  
Railroad, utilities and energy *
    424       488  
Finance and financial products *
    522       440  
    $ 86,216     $ 76,991  


*
Included in other assets.
 
As of June 30, 2012, unrealized losses on equity securities in a continuous unrealized loss position for more than twelve consecutive months were $52 million.  There were none as of December 31, 2011.  As of June 30, 2012 and December 31, 2011, we concluded that the unrealized losses were temporary. Our conclusions were based on: (a) our ability and intent to hold the securities to recovery; (b) our assessment that the underlying business and financial condition of each of these issuers was favorable; (c) our opinion that the relative price declines were not significant; and (d) our belief that it was reasonably possible that market prices will increase to and exceed our cost in a relatively short period of time.
 
 
8

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 6.    Other investments
 
Other investments include fixed maturity and equity securities of The Goldman Sachs Group, Inc. (“GS”), General Electric Company (“GE”), Wm. Wrigley Jr. Company (“Wrigley”), The Dow Chemical Company (“Dow”) and Bank of America Corporation (“BAC”). A summary of other investments follows (in millions).
 
   
Cost
   
Net
Unrealized
Gains
   
Fair
Value
   
Carrying
Value
 
June 30, 2012
                       
Other fixed maturity and equity securities:
                       
Insurance and other
  $ 13,045     $ 2,171     $ 15,216     $ 14,297  
Finance and financial products
    3,198       1,200       4,398       4,388  
    $ 16,243     $ 3,371     $ 19,614     $ 18,685  
                                 
                                 
December 31, 2011
                               
Other fixed maturity and equity securities:
                               
Insurance and other
  $ 13,051     $ 1,055     $ 14,106     $ 13,111  
Finance and financial products
    3,198       623       3,821       3,810  
    $ 16,249     $ 1,678     $ 17,927     $ 16,921  
 
In 2008, we acquired 50,000 shares of 10% Cumulative Perpetual Preferred Stock of GS (“GS Preferred”) and warrants to purchase 43,478,260 shares of common stock of GS (“GS Warrants”) for a combined cost of $5 billion. The GS Preferred was redeemable at any time by GS at a price of $110,000 per share ($5.5 billion in aggregate). On April 18, 2011, GS fully redeemed our GS Preferred investment. We continue to hold the GS Warrants, which expire on October 1, 2013. The GS Warrants are exercisable for an aggregate cost of $5 billion ($115/share).
 
In 2008, we acquired 30,000 shares of 10% Cumulative Perpetual Preferred Stock of GE (“GE Preferred”) and warrants to purchase 134,831,460 shares of common stock of GE (“GE Warrants”) for a combined cost of $3 billion. The GE Preferred was redeemable by GE beginning in October 2011 at a price of $110,000 per share ($3.3 billion in aggregate). On October 17, 2011, GE fully redeemed our GE Preferred investment. We continue to hold the GE Warrants, which expire on October 16, 2013. The GE Warrants are exercisable for an aggregate cost of $3 billion ($22.25/share).
 
In 2008, we acquired $4.4 billion par amount of 11.45% Wrigley subordinated notes maturing in 2018 and $2.1 billion of 5% Wrigley preferred stock. The subordinated notes may be called prior to maturity at par plus the prepayment premium applicable at that time.  In 2009, we also acquired $1.0 billion par amount of Wrigley senior notes maturing in 2013 and 2014. We currently own $800 million of the Wrigley senior notes and an unconsolidated joint venture in which we hold a 50% economic interest owns $200 million. The Wrigley subordinated and senior notes are classified as held-to-maturity and we carry these investments at cost, adjusted for foreign currency exchange rate changes that apply to certain of the senior notes. The Wrigley preferred stock is classified as available-for-sale and recorded in our financial statements at fair value.
 
In 2009, we acquired 3,000,000 shares of Series A Cumulative Convertible Perpetual Preferred Stock of Dow (“Dow Preferred”) for a cost of $3 billion. Under certain conditions, we can convert each share of the Dow Preferred into 24.201 shares of Dow common stock (equivalent to a conversion price of $41.32 per share). Beginning in April 2014, if Dow’s common stock price exceeds $53.72 per share for any 20 trading days in a consecutive 30-day window, Dow, at its option, at any time, in whole or in part, may convert the Dow Preferred into Dow common stock at the then applicable conversion rate. The Dow Preferred is entitled to dividends at a rate of 8.5% per annum.
 
On September 1, 2011, we acquired 50,000 shares of 6% Cumulative Perpetual Preferred Stock of BAC (“BAC Preferred”) and warrants to purchase 700,000,000 shares of common stock of BAC (“BAC Warrants”) for a combined cost of $5 billion. The BAC Preferred is redeemable at any time by BAC at a price of $105,000 per share ($5.25 billion in aggregate). The BAC Warrants expire in 2021 and are exercisable for an additional aggregate cost of $5 billion ($7.142857/share).
 
 
9

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 7.    Investment gains/losses and other-than-temporary impairment losses on investments
 
Investment gains/losses are summarized below (in millions).
 
   
Second Quarter
   
First Six Months
 
   
2012
   
2011
   
2012
   
2011
 
Fixed maturity securities —
                       
Gross gains from sales and other disposals
  $ 58     $ 94     $ 91     $ 176  
Gross losses from sales and other disposals
    (329 )     (4 )     (345 )     (4 )
Equity securities —
                               
Gross gains from sales and other disposals
    385       1,267       573       1,268  
Gross losses from sales and other disposals
    (7 )     (4 )     (7 )     (14 )
Other
    18       (64 )     44       (38 )
    $ 125     $ 1,289     $ 356     $ 1,388  
 
Net investment gains/losses are reflected in the Consolidated Statements of Earnings as follows.
 
   
Second Quarter
   
First Six Months
 
   
2012
   
2011
   
2012
   
2011
 
Insurance and other
  $ 102     $ 1,128     $ 332     $ 1,214  
Finance and financial products
    23       161       24       174  
    $ 125     $ 1,289     $ 356     $ 1,388  
 
In the second quarter of 2011, we realized an investment gain of $1.25 billion from the redemption of our investment in GS Preferred.
 
Other-than-temporary impairment (“OTTI”) losses were as follows (in millions).
 
   
Second Quarter
   
First Six Months
 
   
2012
   
2011
   
2012
   
2011
 
Equity securities
  $     $     $     $ 506  
Fixed maturity securities
                337        
    $     $     $ 337     $ 506  
 
We record investments in equity and fixed maturity securities classified as available-for-sale at fair value and record the difference between fair value and cost in other comprehensive income. OTTI losses recognized in earnings represent reductions in the cost basis of the investment, but not the fair value. Accordingly, such losses that are included in earnings are generally offset by a corresponding credit to other comprehensive income and therefore have no net effect on shareholders’ equity as of the balance sheet date.
 
In the first quarter of 2012, we recorded OTTI losses of $337 million on certain fixed maturity investments issued by Texas Competitive Electric Holdings where we concluded that we were unlikely to receive all of the remaining contractual interest and principal amounts when due. In the first quarter of 2011, we recorded OTTI losses of $506 million related to certain of our investments in equity securities. The OTTI losses included $337 million with respect to 103.6 million shares of our investment in Wells Fargo & Company (“Wells Fargo”) common stock. These shares had an aggregate original cost of $3,621 million. At that time, we also held an additional 255.4 million shares of Wells Fargo which were acquired at an aggregate cost of $4,394 million and which had unrealized gains of $3,704 million as of March 31, 2011. Due to the length of time that certain of our Wells Fargo shares were in a continuous unrealized loss position and because we account for realized gains and losses from dispositions on a specific identification basis, accounting regulations required us to record the unrealized losses in earnings. However, the unrealized gains were not reflected in earnings but were instead recorded directly in shareholders’ equity as a component of accumulated other comprehensive income.
 
Note 8.    Receivables
 
Receivables of insurance and other businesses are comprised of the following (in millions).
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Insurance premiums receivable
  $ 7,750     $ 6,663  
Reinsurance recoverable on unpaid losses
    2,894       2,953  
Trade and other receivables
    10,917       9,772  
Allowances for uncollectible accounts
    (369 )     (376 )
    $ 21,192     $ 19,012  
 
 
10

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 8.    Receivables (Continued)
 
Loans and finance receivables of finance and financial products businesses are comprised of the following (in millions).
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Consumer installment loans and finance receivables
  $ 13,159     $ 13,463  
Commercial loans and finance receivables
    885       860  
Allowances for uncollectible loans
    (380 )     (389 )
    $ 13,664     $ 13,934  
 
Allowances for uncollectible loans primarily relate to consumer installment loans. Provisions for consumer loan losses for each of the first six month periods of 2012 and 2011 were $161 million. Loan charge-offs, net of recoveries, for the first six months were $170 million in 2012 and $160 million in 2011. Consumer loan amounts are net of unamortized acquisition discounts of $519 million at June 30, 2012 and $500 million at December 31, 2011. At June 30, 2012, approximately 96% of consumer installment loan balances were evaluated collectively for impairment, whereas about 84% of commercial loan balances were evaluated individually for impairment. As a part of the evaluation process, credit quality indicators are reviewed and loans are designated as performing or non-performing. At June 30, 2012, approximately 98% of consumer installment and commercial loan balances were determined to be performing and approximately 94% of those balances were current as to payment status.
 
Note 9.    Inventories
 
Inventories are comprised of the following (in millions).
 
   
June 30,
   
December 31,
 
   
2012
   
2011
 
Raw materials
  $ 1,713     $ 1,598  
Work in process and other
    902       897  
Finished manufactured goods
    3,229       3,114  
Goods acquired for resale
    3,681       3,366  
    $ 9,525     $ 8,975  
 
Note 10.    Goodwill and other intangible assets
 
A reconciliation of the change in the carrying value of goodwill for the six months ended June 30, 2012 and the year ended December 31, 2011 follows (in millions).
 
    June 30,     December 31,  
   
2012
   
2011
 
Balance at beginning of year
  $ 53,213     $ 49,006  
Acquisitions of businesses
    115       4,179  
Other, including foreign currency translation
    (183 )     28  
Balance at end of period
  $ 53,145     $ 53,213  
 
Intangible assets other than goodwill are included in other assets and are summarized by type as follows (in millions).
 
   
June 30, 2012
   
December 31, 2011
 
   
Gross carrying
amount
   
Accumulated
amortization
   
Gross carrying
amount
   
Accumulated
amortization
 
Insurance and other
  $ 11,124     $ 2,639     $ 11,016     $ 2,319  
Railroad, utilities and energy
    2,097       783       2,088       623  
    $ 13,221     $ 3,422     $ 13,104     $ 2,942  
                                 
Trademarks and trade names
  $ 2,672     $ 250     $ 2,655     $ 219  
Patents and technology
    4,943       1,777       4,900       1,496  
Customer relationships
    4,124       991       4,060       840  
Other
    1,482       404       1,489       387  
    $ 13,221     $ 3,422     $ 13,104     $ 2,942  
 
 
11

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 10.    Goodwill and other intangible assets (Continued)
 
Amortization expense was $502 million for the first six months of 2012 and $374 million for the first six months of 2011. Intangible assets with indefinite lives as of June 30, 2012 and December 31, 2011 were $2,274 million and $2,250 million, respectively.
 
Note 11.    Property, plant and equipment
 
Property, plant and equipment of our insurance and other businesses are comprised of the following (in millions).
 
    Ranges of
estimated useful life
   
June 30,
2012
   
December 31,
2011
 
Land
      $ 964     $ 940  
Buildings and improvements
 
3 – 40 years
      5,494       5,429  
Machinery and equipment
 
3 – 25 years
      13,811       13,589  
Furniture, fixtures and other
 
2 – 20 years
      2,645       2,397  
Assets held for lease
 
12 – 30 years
      6,362       5,997  
            29,276       28,352  
Accumulated depreciation
          (10,888 )     (10,175 )
          $ 18,388     $ 18,177  
 
Depreciation expense of insurance and other businesses for the first six months of 2012 and 2011 was $955 million and $791 million, respectively.
 
Property, plant and equipment of our railroad, utilities and energy businesses are comprised of the following (in millions).
 
   
Ranges of
estimated  useful life
   
June 30,
2012
   
December 31,
2011
 
Railroad:
                 
Land
      $ 5,926     $ 5,925  
Track structure and other roadway
 
5 – 100 years
      37,453       36,760  
Locomotives, freight cars and other equipment
 
5 – 37 years
      6,038       5,533  
Construction in progress
        965       885  
Utilities and energy:
                     
Utility generation, distribution and transmission system
 
5 – 80 years
      41,083       40,180  
Interstate pipeline assets
 
3 – 80 years
      6,278       6,245  
Independent power plants and other assets
 
3 – 30 years
      1,115       1,106  
Construction in progress
        2,265       1,559  
            101,123       98,193  
Accumulated depreciation
          (16,680 )     (15,979 )
          $ 84,443     $ 82,214  
 
Railroad property, plant and equipment includes the land, other roadway, track structure and rolling stock (primarily locomotives and freight cars) of BNSF. The utility generation, distribution and transmission system and interstate pipeline assets are the regulated assets of public utility and natural gas pipeline subsidiaries. Depreciation expense of the railroad, utilities and energy businesses for the first six months of 2012 and 2011 was $1,476 million and $1,396 million, respectively.
 
 
12

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 12.    Derivative contracts
 
As of June 30, 2012, derivative contracts are used primarily by our finance and financial products and energy businesses. Substantially all of the derivative contracts of our finance and financial products businesses are not designated as hedges for financial reporting purposes. We entered into these contracts with the expectation that the premiums received would exceed the amounts ultimately paid to counterparties. Changes in the fair values of such contracts are reported in earnings as derivative gains/losses. A summary of derivative contracts of our finance and financial products businesses follows (in millions).
 
   
June 30, 2012
   
December 31, 2011
 
   
Assets (3)
   
Liabilities
   
Notional
Value
   
Assets (3)
   
Liabilities
   
Notional
Value
 
Equity index put options
  $     $ 8,983     $ 33,463 (1)   $     $ 8,499     $ 34,014 (1)
Credit default contracts:
                                               
High yield indexes
            15       3,258 (2)           198       4,568 (2)
States/municipalities
            953       16,042 (2)           1,297       16,042 (2)
Individual corporate
    60       19       3,565 (2)     55       32       3,565 (2)
Other
    220       206               268       156          
Counterparty netting
    (61 )     (39 )             (67 )     (43 )        
    $ 219     $ 10,137             $ 256     $ 10,139          

(1) 
Represents the aggregate undiscounted amount payable at the contract expiration dates assuming that the value of each index is zero at the contract expiration date.
 
(2) 
Represents the maximum undiscounted future value of losses payable under the contracts. The number of losses required to exhaust contract limits under substantially all of the contracts is dependent on the loss recovery rate related to the specific obligor at the time of a default.
 
(3) 
Included in other assets of finance and financial products businesses.
 
Derivative gains/losses of our finance and financial products businesses included in our Consolidated Statements of Earnings were as follows (in millions).
 
   
Second Quarter
   
First Six Months
 
    2012     2011     2012     2011  
Equity index put options
  $ (1,173 )   $ (271 )   $ (484 )   $ (48 )
Credit default obligations
    171       142       511       212  
Other
    (66 )     (55 )     (93 )     (77 )
    $ (1,068 )   $ (184 )   $ (66 )   $ 87  
 
The equity index put option contracts are European style options written on four major equity indexes. Future payments, if any, under these contracts will be required if the underlying index value is below the strike price at the contract expiration dates. We received the premiums on these contracts in full at the contract inception dates and therefore have no counterparty credit risk. We entered into no new contracts in 2011 or 2012.
 
At June 30, 2012, the aggregate intrinsic value (which is the undiscounted liability assuming the contracts are settled on their future expiration dates based on the June 30, 2012 index values and foreign currency exchange rates) was approximately $5.7 billion. However, these contracts may not be unilaterally terminated or fully settled before the expiration dates which occur between June 2018 and January 2026. Therefore, the ultimate amount of cash basis gains or losses on these contracts will not be determined for many years. The remaining weighted average life of all contracts was approximately 8.5 years at June 30, 2012.
 
Our credit default contracts pertain to various indexes of non-investment grade (or “high yield”) corporate issuers, as well as investment grade state/municipal and individual corporate debt issuers. These contracts cover the loss in value of specified debt obligations of the issuers arising from default events, which are usually from their failure to make payments or bankruptcy. Loss amounts are subject to aggregate contract limits. We entered into no new contracts in 2011 or 2012.
 
 
13

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 12.    Derivative contracts (Continued)
 
The high yield index contracts are comprised of specified North American corporate issuers (usually 100 in number at inception) whose obligations are rated below investment grade. High yield contracts in-force at June 30, 2012 will expire in December 2012 and in 2013. State/municipality contracts are comprised of over 500 state and municipality issuers and had a remaining weighted average contract life at June 30, 2012 of approximately 8.8 years. Subsequent to June 30, 2012, Berkshire entered into an agreement with the counterparty to certain of the state/municipality contracts to terminate contracts with notional values of $8.25 billion. Future loss payments, if any, related to the remaining 50% of the notional value of the state/municipality contracts cannot be unilaterally settled before the maturity dates of the underlying municipality obligation, which range from 2019 to 2054.
 
Premiums on the high yield index and state/municipality contracts were received in full at the inception dates of the contracts and, as a result, we have no counterparty credit risk. Future losses, if any, under substantially all of our high yield index contracts in-force as of June 30, 2012 are subject to sizable aggregate deductibles that must be satisfied before we have any payment obligations. Our payment obligations under state/municipality contracts are on a first loss basis.
 
Individual corporate credit default contracts primarily relate to issuers of investment grade obligations. In most instances, premiums are due from counterparties on a quarterly basis over the terms of the contracts. All of the contracts in-force as of June 30, 2012 will expire in 2013.
 
With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of June 30, 2012, our collateral posting requirement under contracts with collateral provisions was $271 million compared to $238 million at December 31, 2011. If Berkshire’s credit ratings (currently AA+ from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, additional collateral of up to $1.1 billion could be required to be posted.
 
Our regulated utility subsidiaries are exposed to variations in the market prices in the purchases and sales of natural gas and electricity and in the purchases of fuel. Derivative instruments, including forward purchases and sales, futures, swaps and options, are used to manage a portion of these price risks. Unrealized gains and losses under the contracts of our regulated utilities that are probable of recovery through rates are recorded as regulatory assets or liabilities. Unrealized gains or losses on contracts accounted for as cash flow or fair value hedges are recorded in accumulated other comprehensive income or in net earnings, as appropriate. Derivative contract assets are included in other assets of railroad, utilities and energy businesses and were $39 million and $71 million as of June 30, 2012 and December 31, 2011, respectively. Derivative contract liabilities are included in accounts payable, accruals and other liabilities of railroad, utilities and energy businesses and were $312 million and $336 million as of June 30, 2012 and December 31, 2011, respectively.
 
Note 13.    Supplemental cash flow information
 
A summary of supplemental cash flow information for the first six months of 2012 and 2011 is presented in the following table (in millions).
 
   
First Six Months
 
   
2012
   
2011
 
Cash paid during the period for:
           
Income taxes
  $ 1,378     $ 802  
Interest:
               
Interest of insurance and other businesses
    167       102  
Interest of railroad, utilities and energy businesses
    890       904  
Interest of finance and financial products businesses
    317       340  
                 
Non-cash investing and financing activities:
               
Liabilities assumed in connection with business acquisitions
    99       31  
Common stock issued in connection with acquisition of noncontrolling interests in Wesco Financial Corporation
          245  
 
 
14

 
 
Notes To Consolidated Financial Statements (Continued)
 
Note 14.    Notes payable and other borrowings
 
Notes payable and other borrowings are summarized below (in millions). The weighted average interest rates and maturity date ranges shown in the following tables are based on borrowings as of June 30, 2012.
 
<
   
Weighted
Average
Interest Rate
   
June 30,
2012
   
December 31,
2011
 
Insurance and other:
                 
Issued by Berkshire parent company due 2013-2047
  2.3%     $ 8,323     $ 8,287  
Short-term subsidiary borrowings
  0.3%       1,392       1,490  
Other subsidiary borrowings due 2012-2035
  6.0%       3,816       3,991  
          $ 13,531     $ 13,768